Auto sales in China soar, along with challenges

18-May-2010 10:28 EDT

The Chinese government is providing subsidies for the development of green vehicles while also subsidizing use of conventional fuels. The photo is from the recent 2010 Beijing International Automotive Exhibition. (China International Exhibition Center)

Sales of passenger vehicles in China are expected to soar by more than 55% from 2009's 8.7 million to 13.55 million in 2015, according to a report released April 22 by J.D. Power and Associates. Emissions of CO2 also are expected to soar, mainly because the Chinese government provides billions of dollars in subsidies for the use of conventional fuels. The subsidies are only expected to grow. And so the introduction of what J.D. Power calls "new-energy vehicles" is expected to be slow, amounting to only 1-2% of the market by 2015. However, the Chinese government is providing $1.5 billion in subsidies for green technologies (including incentives for purchase of NEVs), and it has selected 13 pilot cities in which to build a NEV support infrastructure. J.D. Power notes that to the extent NEVs are developed and sold, foreign automakers are at a disadvantage because of tax breaks for the domestics. Regarding vehicles sales in general, J.D. Power says "hyper-competition" is making it increasingly difficult for automakers to post profits. By 2015, the company notes, there will be more than 90 automotive brands competing in the passenger-vehicle segment. More than 300 individual models will be produced in China, with hundreds more imported. Low-margin compacts and subcompacts are expected to constitute 60% of sales by 2015 (the projected figure for the U.S. is 22%). Plant capacity utilization is also a growing problem, with the figure expected to sink to 66% by 2015. Factories typically need to achieve at least 80% capacity utilization to cover costs, J.D. Power notes.